ED seizes funds worth Rs 107 Cr of Chinese loan app firm for FEMA violation

ED said it has seized funds worth about Rs 107 cr of a Chinese-controlled NBFC, engaged in dishing out instant personal loans over an internet-based app, for alleged violation of foreign exchange law

The Enforcement Directorate (ED) on Thursday said it has seized funds worth about Rs 107 crore of a Chinese-controlled NBFC, engaged in dishing out instant personal loans over an internet-based app, for alleged violation of the foreign exchange law.

The agency said the funds of PC Financial Services Private Limited (PCFS), a non-banking financial company (NBFC), were lying in bank accounts and virtual accounts over online payment gateways and those have been seized under the provisions of the Foreign Exchange Management Act (FEMA).

The total amount seized is Rs 106.93 crore.

The ED said the case came on its radar during an ongoing money-laundering probe against a number of NBFCs and FinTech companies that are linked to instant personal loan-providing mobile applications.

These loans were being dished out with a high rate of interest and recovered using the personal data of the customers illegally and threatening and abusing them through call centres, the agency said in a statement.

The alleged illegalities of these apps were reported from a number of states last year, especially following the economic stress triggered by the lockdown clamped to curb the spread of COVID-19, and a number of people were reported to have been driven to end their lives due to the extortion and bullying of these "dubious" companies.

In the latest case, the NBFC was giving out such loans through a mobile phone app called "cashbean".

"PCFS is a wholly-owned subsidiary (WOS) of Oplay Digital Services, SA de CV, Mexico, which is in turn is a WOS of Tenspot Pesa Limited, Hong Kong, owned by Opera Limited (Cayman Islands) and Wisdom Connection I Holding Inc. (Cayman Islands), which are ultimately beneficially owned by Chinese national Zhou Yahui.

"The original Indian company, PCFS, was incorporated in 1995 by Indian nationals and got NBFC licence in 2002 and after RBI approval in 2018, the ownership moved to the Chinese-controlled company," the ED said.

The ED probe found that the foreign parent companies of PCFS brought in foreign direct investment (FDI) worth Rs 173 crore for lending business and within a short span of time, made foreign outward remittances of Rs 429.29 crore in the name of payments for the software services received from the related foreign firms.

PCFS also showed a high domestic expenditure of Rs 941 crore, the agency said.

A "detailed" investigation showed that most of the foreign expenses paid by the company were to foreign firms, which are related and owned by the same Chinese nationals who own the Opera group, it claimed.

"All foreign service providers were chosen by the Chinese owners and the price of the services was also fixed by them.

"ED has found that exorbitant payments were blindly allowed by the dummy Indian directors of PCFS, without any due diligence and on the instructions of country head Zhang Hong, who directly reported to Zhou Yahui, a resident of China," the agency said.

PCFS remitted forex worth Rs 429 crore to 13 foreign companies located in Hong Kong, China, Taiwan, the US and Singapore in the guise of payments for the licence fee for the "cashbean" app (at Rs 245 crore per annum), software technical fee (of around Rs 110 crore) and online marketing and advertisement fee (of around Rs 66 crore), it alleged.

The ED said all these services and applications are available in India at a "fraction" of the cost incurred by PCFS.

"Moreover, all the clientele of the NBFC was in India and despite that, huge payments were made abroad and no proof of receipt of service is there.

"Simultaneously, during the same period of time, PCFS also booked domestic expenditure of a similar amount under the same heads of expenditure," it alleged.

The agency alleged that the management of the company "failed" to give any justification for these expenses and admitted that all remittances were made to move money out of India and park it abroad in the accounts of group companies "controlled" by the Chinese promoter.

Hence, it charged that PCFS "illegally" remitted huge funds outside India in the guise of importing non-existent software and marketing services to park the funds abroad and hold those in the accounts of related foreign companies, leading to contravention of the FEMA.